Delhi High Court - Orders
Ms Power Mech Projects Limited vs Ms Ntpc Bhel Power Projects Private ... on 24 August, 2022
Author: V. Kameswar Rao
Bench: V. Kameswar Rao
$~2 & 3
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ARB.P. 210/2022
MS POWER MECH PROJECTS LIMITED
..... Petitioner
Through: Mr. Sanjeev Kumar, Mr. Abhyanand
and Mr. H.K. Naik, Advs.
versus
MS NTPC BHEL POWER PROJECTS PRIVATE LIMITED
..... Respondent
Through: Mr. Adarsh Tripathi and Mr. Vikram
Singh Baid, Advs. for NBPPL
AND
+ ARB.P. 212/2022
M/S POWER MECH PROJECTS LIMITED
..... Petitioner
Through: Mr. Sanjeev Kumar, Mr. Abhyanand
and Mr. H.K. Naik, Advs.
versus
M/S NTPC BHEL POWER PROJECTS PRIVATE LIMITED
..... Respondent
Through: Mr. Adarsh Tripathi and Mr. Vikram
Singh Baid, Advs. for NBPPL
CORAM:
HON'BLE MR. JUSTICE V. KAMESWAR RAO
ORDER
% 24.08.2022
1. These two petitions have been filed by the petitioner for appointment of an Arbitrator.
Facts in Arb.P.210/2022:-
2. The case set up by the petitioner and so contended by the learned counsel for the petitioner is that on January 23, 2015, respondent issued a Work Order in favour of the petitioner and awarded the contract works for Signature Not Verified Digitally Signed By:DHARMENDER SINGH Signing Date:29.08.2022 16:16:02 Execution of Main Plant Civil works including construction of Main Plant, Mill Bunker, Structure, TG Deck, Piling Works, Chimney Works and other civil works at FGUTPP, Raebareli District, Uttar Pradesh. An Agreement dated November 18, 2015 was executed between the parties.
3. It is the case of the petitioner that the awarded work was completed in all respects. Even the Defect Liability Period together with three months of claim period expired on October 15, 2020. The security deposit / bank guarantees were discharged on July 01, 2021. The petitioner submitted to the respondent the final RA bill on May 17, 2021, which was approved by the respondent.
4. It is the case of the petitioner that on November 06, 2021 it lodged various claims with the respondent towards the compensation for losses suffered on account of breaches attributable to the respondent claiming an amount of ₹54,09,14,989/-. On December 13, 2021, the petitioner invoked the arbitration clause requiring the respondent to appoint an Arbitrator to adjudicate the dispute which has arisen between the parties.
5. It is the case of the petitioner that the respondent ignored the petitioner's request for appointment of an Arbitrator, inasmuch as it did not appoint an Arbitrator. Hence, the petitioner has approached this Court by way of this petition.
Facts in Arb.P.212/2022:-
6. The case set up by the petitioner and so contended by learned counsel for the petitioner is that on January 23, 2015, respondent issued Work Order in favour of the petitioner and awarded the contract works for execution of BOP Civil Work Packages at 1 x 500 MW FGUTPP, Rai Bareli District, Uttar Pradesh. An Agreement dated November 19, 2015 was executed Signature Not Verified Digitally Signed By:DHARMENDER SINGH Signing Date:29.08.2022 16:16:02 between the parties.
7. It is the case of the petitioner that the awarded work was completed in all respects. Even the Defect Liability Period together with three months of claim period expired on October 15, 2020. The security deposit / bank guarantees were discharged on July 01, 2021. The petitioner submitted to the respondent the final RA bill on July 10, 2021, which was approved by the respondent.
8. It is the case of the petitioner that on November 13, 2021 it lodged various claims with the respondent towards the compensation for losses suffered on account of breaches attributable to the respondent claiming an amount of ₹33,65,71,286/-. On December 11, 2021, the respondent for the first time raised issue with respect to two R.A. Bills, i.e. Running Account Nos.46 and 47 of the subject contract works, alleging discrepancies with respect to the same, without disclosing the alleged discrepancies and threatening to recover the same from petitioner. Accordingly, the petitioner invoked the arbitration clause on December 13, 2021 requiring the respondent to appoint an Arbitrator to adjudicate the disputes.
9. It is the case of the petitioner that the respondent ignored the petitioner's request for appointment of an Arbitrator, inasmuch as it did not appoint an Arbitrator. Hence, the petitioner has approached this Court by way of this petition.
10. He states that in terms of the contract the submission of No Demand Certificate is a requirement which the petitioner gave in both the contracts.
According to him, the petitioner has no other alternative but to give the No Demand Certificate. In other words, the petitioner cannot say that the same is given without prejudice to its rights and contentions. He states that, there Signature Not Verified Digitally Signed By:DHARMENDER SINGH Signing Date:29.08.2022 16:16:02 being an arbitration clause the disputes in both the contracts need to be referred to arbitration.
11. Replies have been filed to the petitions.
12. Mr. Adarsh Tripathi, learned counsel for the respondent (in both petitions) does not contest the existence of the arbitration clause in the contracts / agreements. His only plea is that the petitioner has consciously submitted No Demand Certificate without uttering for once that the same is being sought under any sort of coercion, duress or undue influence. He states that till date, nowhere in the present matters, by way of the pleadings the petitioner has set up such a case, which goes on to show that the said Certificate (both cases) is vitiated for the reasons thereof. It is for the first time, such plea has been raised in the rejoinder on July 29, 2022, which is approximately after 14 months. In support of his submission, he has relied upon the judgment in the case of ONGC Mangalore Petrochemicals Ltd. v. ANS Constructions Ltd. & Anr. (2018) 3 SCC 373.
13. Having heard the learned counsel for the parties, as noted above, Mr. Tripathi has not challenged the existence of an arbitration clause and also the jurisdiction of this court to entertain the petitions. His only plea is with regard to No Demand Certificate submitted by the petitioner without demur / protest and as such there is no dispute to be arbitrable.
14. On this submission of Mr. Tripathi, the plea of Mr. Sanjeev Kumar, learned counsel for the petitioner is that in terms of the contract, the submission of No Demand Certificate is a requirement. The petitioner has no alternative but to give the said No Demand Certificate. In other words, the petitioner cannot even say that the same is being given without prejudice to its rights and contentions.
Signature Not Verified Digitally Signed By:DHARMENDER SINGH Signing Date:29.08.2022 16:16:0215. Suffice to state, the issue is squarely covered by the judgment of the Supreme Court in the case of Mayavati Trading Pvt. Ltd. v. Pradyuat Deb Burman (2019) 8 SCC 714 wherein the Supreme Court has also considered its judgment in ONGC Mangalore Petrochemicals Ltd. (supra). The relevant part of the said judgment is reproduced as under:-
"7. Prior to Section 11(6-A), this Court in several judgments beginning with SBP & Co. v. Patel Engg. Ltd. has held that at the stage of a Section 11(6) application being filed, the court need not merely confine itself to the examination of the existence of an arbitration agreement but could also go into certain preliminary questions such as stale claims, accord and satisfaction having been reached, etc.
8. In ONGC Mangalore Petrochemicals Ltd. v. ANS Constructions Ltd. , this Court in a case which arose before the insertion of Section 11(6-A) dismissed a Section 11 petition on the ground that accord and satisfaction had taken place in the following terms : (SCC p. 390, para 31) "31. Admittedly, no-dues certificate was submitted by the contractee company on 21-9-2012 and on their request completion certificate was issued by the appellant contractor. The contractee, after a gap of one month, that is, on 24-10-2012, withdrew the no-dues certificate on the grounds of coercion and duress and the claim for losses incurred during execution of the contract site was made vide letter dated 12-1-2013 i.e. after a gap of 3½ (three-and-a-half) months whereas the final bill was settled on 10-10-2012. When the contractee accepted the final payment in full and final satisfaction of all its claims, there is no point in raising the claim for losses incurred during the execution of the contract at a belated stage which creates an iota of doubt as to why such claim was not settled at the time of submitting final bills that too in the absence of exercising duress or coercion on the contractee by the appellant contractor. In our considered view, the plea raised by the contractee company is bereft of any details and particulars, and cannot be anything but a bald assertion. In the circumstances, there was full and final settlement of the claim and there was really accord and satisfaction and in our view no arbitrable dispute existed so as to exercise power under Section 11 of the Act. The High Court was not, therefore, justified in exercising power under Section 11 of the Act."Signature Not Verified Digitally Signed By:DHARMENDER SINGH Signing Date:29.08.2022 16:16:02
9. The 246th Law Commission Report dealt with some of these judgments and felt that at the stage of a Section 11(6) application, only "existence" of an arbitration agreement ought to be looked at and not other preliminary issues. In a recent judgment of this Court, namely, Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd., this Court adverted to the said Law Commission Report and held :
(Garware Wall Ropes Ltd. case , SCC paras 8-14) "8. The case law under Section 11(6) of the Arbitration Act, as it stood prior to the Amendment Act, 2015, has had a chequered history.
9. In Konkan Railway Corpn. Ltd. v. Mehul Construction Co.
(Konkan Railway 1), it was held that the powers of the Chief Justice under Section 11(6) of the 1996 Act are administrative in nature, and that the Chief Justice or his designate does not act as a judicial authority while appointing an arbitrator. The same view was reiterated in Konkan Railway Corpn. Ltd. v. Rani Construction (P) Ltd. (Konkan Railway 2).
10. However, in SBP & Co. , a seven-Judge Bench overruled this view and held that the power to appoint an arbitrator under Section 11 is judicial and not administrative. The conclusions of the seven- Judge Bench were summarised in para 47 of the aforesaid judgment. We are concerned directly with sub-paras (i), (iv) and
(xii), which read as follows : (SCC pp. 663-64) „(i) The power exercised by the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) of the Act is not an administrative power. It is a judicial power.
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(iv) The Chief Justice or the designated Judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be his own jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice or the designated Judge would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only Signature Not Verified Digitally Signed By:DHARMENDER SINGH Signing Date:29.08.2022 16:16:02 be that of the Chief Justice or the designated Judge.
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(xii) The decision in Konkan Railway Corpn. Ltd. v. Rani Construction (P) Ltd. is overruled.‟
11. This position was further clarified in Boghara Polyfab as follows :
(SCC p. 283, para 22) „22. Where the intervention of the court is sought for appointment of an Arbitral Tribunal under Section 11, the duty of the Chief Justice or his designate is defined in SBP & Co. This Court identified and segregated the preliminary issues that may arise for consideration in an application under Section 11 of the Act into three categories, that is, (i) issues which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide, that is, issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide.
22.1. The issues (first category) which the Chief Justice/his designate will have to decide are:
(a) Whether the party making the application has approached the appropriate High Court.
(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement.
22.2. The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) are:
(a) Whether the claim is a dead (long-barred) claim or a live claim.
(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.
22.3. The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are:
(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration).Signature Not Verified Digitally Signed By:DHARMENDER SINGH Signing Date:29.08.2022 16:16:02
(ii) Merits or any claim involved in the arbitration.‟
12. As a result of these judgments, the door was wide open for the Chief Justice or his designate to decide a large number of preliminary aspects which could otherwise have been left to be decided by the arbitrator under Section 16 of the 1996 Act. As a result, the Law Commission of India, by its Report No. 246 submitted in August 2014, suggested that various sweeping changes be made in the 1996 Act. Insofar as SBP & Co. and Boghara Polyfab are concerned, the Law Commission examined the matter and recommended the addition of a new sub-section, namely, sub-section (6-A) in Section 11.
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14. A reading of the Law Commission Report, together with the Statement of Objects and Reasons, shows that the Law Commission felt that the judgments in SBP & Co. and Boghara Polyfab required a relook, as a result of which, so far as Section 11 is concerned, the Supreme Court or, as the case may be, the High Court, while considering any application under Sections 11(4) to 11(6) is to confine itself to the examination of the existence of an arbitration agreement and leave all other preliminary issues to be decided by the arbitrator."
10. This being the position, it is clear that the law prior to the 2015 Amendment that has been laid down by this Court, which would have included going into whether accord and satisfaction has taken place, has now been legislatively overruled. This being the position, it is difficult to agree with the reasoning contained in the aforesaid judgment [United India Insurance Co. Ltd. v. Antique Art Exports (P) Ltd., (2019) 5 SCC 362 : (2019) 2 SCC (Civ) 785] , as Section 11(6-A) is confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense as has been laid down in the judgment in Duro Felguera, SA [Duro Felguera, SA v. Gangavaram Port Ltd. :(2017) 9 SCC 729."
16. Further, the scope of Section 11 in view of the provisions of Section 11(6-A) is very limited. The Supreme Court in the case of Duro Felguera, SA v. Gangavaram Port Ltd. (2017) 9 SCC 729 has, in paragraphs 48 and 59 held as under:-
Signature Not Verified Digitally Signed By:DHARMENDER SINGH Signing Date:29.08.2022 16:16:02"48. Section 11(6-A) added by the 2015 Amendment, reads as follows: "11. (6-A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub- section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any court, confine to the examination of the existence of an arbitration agreement."
From a reading of Section 11(6-A), the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect--the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple--it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.
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59. The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618 and National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117. This position continued till the amendment brought about in 2015. After the amendment, all that the courts need to see is whether an arbitration agreement exists-- nothing more, nothing less. The legislative policy and purpose is essentially to minimise the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected."
17. Similarly, in Vidya Drolia v. Durga Trading Corporation, (2019) 20 SCC 406, the Supreme Court has in paragraphs 132, 133, 134, 140, 147, 147.5, 147.7 and 147.11 held as under:-
"132. The courts at the referral stage do not perform ministerial functions. They exercise and perform judicial functions when they decide objections in terms of Sections 8 and 11 of the Signature Not Verified Digitally Signed By:DHARMENDER SINGH Signing Date:29.08.2022 16:16:02 Arbitration Act. Section 8 prescribes the courts to refer the parties to arbitration, if the action brought is the subject of an arbitration agreement, unless it finds that prima facie no valid arbitration agreement exists. Examining the term "prima facie", in Nirmala J. Jhala v. State of Gujarat [Nirmala J. Jhala v. State of Gujarat, (2013) 4 SCC 301 : (2013) 2 SCC (L&S) 270] , this Court had noted: (SCC p. 320, para 48) "48. „27. ... A prima facie case does not mean a case proved to the hilt but a case which can be said to be established if the evidence which is led in support of the case were [to be] believed. While determining whether a prima facie case had been made out or not the relevant consideration is whether on the evidence led it was possible to arrive at the conclusion in question and not whether that was the only conclusion which could be arrived at on that evidence.‟ [Ed.: As observed in Martin Burn Ltd. v. R.N. Banerjee, AIR 1958 SC 79, p. 85, para
27.] "
133. Prima facie case in the context of Section 8 is not to be confused with the merits of the case put up by the parties which has to be established before the Arbitral Tribunal. It is restricted to the subject-matter of the suit being prima facie arbitrable under a valid arbitration agreement. Prima facie case means that the assertions on these aspects are bona fide. When read with the principles of separation and competence- competence and Section 34 of the Arbitration Act, the referral court without getting bogged down would compel the parties to abide unless there are good and substantial reasons to the contrary.
134. Prima facie examination is not full review but a primary first review to weed out manifestly and ex facie non-existent and invalid arbitration agreements and non-arbitrable disputes. The prima facie review at the reference stage is to cut the deadwood and trim off the side branches in straightforward cases where dismissal is barefaced and pellucid and when on the facts and law the litigation must stop at the first stage.
Signature Not Verified Digitally Signed By:DHARMENDER SINGH Signing Date:29.08.2022 16:16:02Only when the court is certain that no valid arbitration agreement exists or the disputes/subject-matter are not arbitrable, the application under Section 8 would be rejected. At this stage, the court should not get lost in thickets and decide debatable questions of facts. Referral proceedings are preliminary and summary and not a mini trial. This necessarily reflects on the nature of the jurisdiction exercised by the court and in this context, the observations of B.N. Srikrishna, J. of "plainly arguable" case in Shin-Etsu Chemical Co. Ltd. [Shin- Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234] are of importance and relevance. Similar views are expressed by this Court in Vimal Kishor Shah [Vimal Kishor Shah v. Jayesh Dinesh Shah, (2016) 8 SCC 788 : (2016) 4 SCC (Civ) 303] wherein the test applied at the pre-arbitration stage was whether there is a "good arguable case" for the existence of an arbitration agreement.
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140. Accordingly, when it appears that prima facie review would be inconclusive, or on consideration inadequate as it requires detailed examination, the matter should be left for final determination by the Arbitral Tribunal selected by the parties by consent. The underlying rationale being not to delay or defer and to discourage parties from using referral proceeding as a ruse to delay and obstruct. In such cases a full review by the courts at this stage would encroach on the jurisdiction of the Arbitral Tribunal and violate the legislative scheme allocating jurisdiction between the courts and the Arbitral Tribunal. Centralisation of litigation with the Arbitral Tribunal as the primary and first adjudicator is beneficent as it helps in quicker and efficient resolution of disputes.
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147. We would proceed to elaborate and give further reasons:
** ** ** ** Signature Not Verified Digitally Signed By:DHARMENDER SINGH Signing Date:29.08.2022 16:16:02 147.5. Sections 8 and 11 of the Arbitration Act are complementary provisions as was held in Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] The object and purpose behind the two provisions is identical to compel and force parties to abide by their contractual understanding. This being so, the two provisions should be read as laying down similar standard and not as laying down different and separate parameters. Section 11 does not prescribe any standard of judicial review by the court for determining whether an arbitration agreement is in existence. Section 8 states that the judicial review at the stage of reference is prima facie and not final. Prima facie standard equally applies when the power of judicial review is exercised by the court under Section 11 of the Arbitration Act. Therefore, we can read the mandate of valid arbitration agreement in Section 8 into mandate of Section 11, that is, "existence of an arbitration agreement".
** ** ** ** 147.7. Exercise of the limited prima facie review does not in any way interfere with the principle of competence competence and separation as to obstruct arbitration proceedings but ensures that vexatious and frivolous matters get over at the initial stage.
** ** ** ** 147.11. The interpretation appropriately balances the allocation of the decision-making authority between the court at the referral stage and the arbitrators' primary jurisdiction to decide disputes on merits. The court as the judicial forum of the first instance can exercise prima facie test jurisdiction to screen and knock down ex facie meritless, frivolous and dishonest litigation. Limited jurisdiction of the courts ensures expeditious, alacritous and efficient disposal when required at the referral stage."
18. Similarly, the Supreme Court in the case of Bharat Sanchar Nigam Ltd. & Anr. v. Nortel Networks India Private Limited, (2021) Signature Not Verified Digitally Signed By:DHARMENDER SINGH Signing Date:29.08.2022 16:16:02 5 SCC 738, has in paragraphs 47 and 53.2 held as under: -
"47. It is only in the very limited category of cases, where there is not even a vestige of doubt that the claim is ex facie time-barred, or that the dispute is non-arbitrable, that the court may decline to make the reference. However, if there is even the slightest doubt, the rule is to refer the disputes to arbitration, otherwise it would encroach upon what is essentially a matter to be determined by the tribunal.
xxx xxx xxx 53.2. In rare and exceptional cases, where the claims are ex facie time-barred, and it is manifest that there is no subsisting dispute, the Court may refuse to make the reference."
19. In view of the above position of law and considering the limited submission made by Mr. Tripathi, I deem it appropriate to allow these petitions and refer the parties to the adjudicatory process by an Arbitrator. Accordingly, I appoint Justice Anil R. Dave (Retd.) (Mob. No.9560309393) a former Judge of the Supreme Court of India as the Sole Arbitrator in both the cases, who shall adjudicate the disputes between the parties through claims and counter claim(s), if any. The fee of the learned Sole Arbitrator shall be in terms of Fourth Schedule to the Arbitration & Conciliation Act, 1996. He shall give disclosure under Section 12 of the Arbitration & Conciliation Act, 1996.
20. All the pleas of the parties, both on facts and in law are left open to be decided by the learned Sole Arbitrator. No costs.
21. Let a copy of this order be sent to Justice Anil R. Dave (Retd.).
V. KAMESWAR RAO, J AUGUST 24, 2022/ak Signature Not Verified Digitally Signed By:DHARMENDER SINGH Signing Date:29.08.2022 16:16:02